Home foreclosure has serious consequences for homeowners and lending institutions. The family losing their home suffers tragic loses financially and emotionally. Lenders suffer monetary losses anywhere from “twenty to sixty cents on the dollar” (FDIC/Foreclosure Statistics 2). Home foreclosure can never be eliminated but it can be reduced. What is causing the increase in numbers of foreclosures and what can be done to resolve high foreclosure ratings?
The majority of people losing their homes are people who experience job loss or are amidst a health crisis (FDIC/Foreclosure Statistics 2). Supposing the individual contacts the lender to state his situation, the lender usually notes the account. If the lender chooses to work with the customer on modifying the loan papers to support payments that work within the borrowers budget, often the loan payments that are currently due are not froze during the modification processing period. If the process takes longer than expected, the borrower’s loan could fall into the three-month default period requiring foreclosure action. At this point, the efforts of the lender have become irrelevant.
A Consultant from Mortgage Banking stated that, “low- and moderate-income borrowers who enter a repayment plan are 68% less likely to lose their homes” compared to those who are not granted repayment plans (FDIC/Foreclosure Statistics 2). I would suggest that lenders who receive what they consider to be a valid indication of financial crisis work with the individual to modify his loan. The lender would need to set up procedures to freeze the borrowers current loan repayment plan and allow a reasonable timeframe to implement a loan modification.
Modifying the terms of the note would require the lender to verify the consumer’s source of income. The lender would then need to determine what the individual’s payment threshold is based on the new wages and establish the new note terms. The terms of the modification would need to specify a date for reevaluation of income to determine if the payor is able to pay on the original note obligations. This process may need to take place several times before the consumer is out of his financial situation. Once the individual is back on his feet or met the maximum allowance of extensions, his note can then be re-amortized on the original note terms. Lenders need to be more favorable to struggling consumers through personal financial crisis, eliminating emotional frustration for the individual and helping the lender reduce losses. The borrower was worthy of the loan to begin with; the lender should work with a consumer to fulfill his obligation.
I had the opportunity to work in the mortgage industry as a mortgage loan processor and underwriter for over ten years. Another factor that I feel effects foreclosure ratings is that automated underwriting services, Desktop Underwriting by Fannie Mae and Loan Prospector by Freddie Mac, allow for borrows to...